By Tiernan Ray

Shares of Facebook (FB) are down 51 cents, or 1.8%, at $27.75 in late trading after Bernstein Research’s Carlos Kirjner cut his rating on the stock this afternoon to Market Perform from Outperform, and cut his price target to $27 from $33, writing that despite “significant untapped monetization opportunities” for the company, that “upside is now in consensus” estimates on the stock.

We think some of the incremental upside from improved mobile monetization as well as of the potential positive impact of FBX on PC pricing is already in the stock price. For example, last November 26, consensus revenues for 2013 were $6,388M, and they are now $6,680M (+5%). Similarly, on November 26, consensus revenues for 2014 were $8,078M and are now at $8,437M (+4%).

Moreover, Kirjner is concerned that an 18% rise in Facebook’s average ad prices is actually “anemic,” and that such tepid growth will cause problems for Facebook’s year-over-year comparisons a year out from now unless the company achieves “a pricing-power inflection.”

We see the 4Q12 18% Y/Y growth in price-per-ad in North America as anemic, in view of the fact that Facebook did not have high-priced (mobile) Newsfeed ads in 4Q11, and hence comps were easy. We believe a large portion of the 18% was driven by this “apples-to-oranges” comps effect. As a consequence, North American price-per-ad growth may still be strong in 1Q13 and 2Q13, but could decline somewhat in 3Q13, and steeply thereafter [...] We think the situation is similar in Western Europe, which together with North America accounts for roughly 70% of Facebook’s revenues today. While Asia and ROW revenues will continue to grow strongly for longer as these geographies are still adding users, continued revenue growth at a rate that can justify a 15 times 2014 consensus EBITDA multiple probably requires North America and Western Europe to grow in the twenty percent range. For that to happen, revenue growth will have to come from new initiatives such as a (lower margin) ad network, much faster growth of FBX impressions and revenues (e.g., to quickly include mobile inventory), and an acceleration of the “organic” growth of price-per-ad, that is, an inflection in pricing power, which in turn will depend on high advertiser ROI. Given the facts we have, we think it is hard to have high conviction that these will work well enough in the next 12 months to support the growth trajectory required for the stock to reach the mid-to-high $30s, and hence we cannot recommend it at this point.

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